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5 Financial Transaction Stocks to Gain From Rising Digitization

The Financial Transaction Services industry is expected to benefit from growing transaction volumes, stemming from improved consumer spending and rebounding cross-border travels. Increased digitization across every sphere of life provides industry players with the perfect ground to capitalize on by leveraging their advanced digital prowess. Continuous pursuit of a merger and acquisition (M&A) strategy coupled with technology investments enables the players to devise a solid digital solutions suite. Companies like Visa Inc. V, Mastercard Incorporated MA, Fiserv, Inc. FISV, Global Payments Inc. GPN and Equifax Inc. EFX are well-placed to gain from the growth prospects of the industry.

About the Industry

The Zacks Financial Transaction Services industry is part of the Financial Technology or the FinTech space, which includes companies with varying natures of businesses. The industry comprises card and payment processing and other solutions providers, ATM services and money remittance service providers, and providers of investment solutions to financial advisors. The players in this segment operate their unique and proprietary global payments network that links issuers and acquirers around the globe to facilitate the switching of transactions, permitting account holders to use their products at millions of acceptance locations. Monetary transactions are executed through these networks, offering a convenient, quick and secure payment method in several currencies across the globe. The industry is benefiting from the ongoing digitization movement, triggered by the pandemic.

4 Trends Defining Future of the Financial Transaction Services Industry

Widespread Uptake of Contactless Payments: One of the most prominent trends noticed since the coronavirus outbreak is people’s inclination toward adopting digital means across every sphere of life. With the cost-effective nature and ease of digital payments, there is no sign of the digital trend fading away anytime soon. Several flexible digital payment options, ranging from buy now, pay later (BNPL) solutions, cryptocurrency, biometrics, to QR code utilization, which consumers were earlier skeptical of, have started gaining popularity. As a result, the financial transaction services industry players have been actively undertaking significant investments for building an upgraded suite and subsequently, attracting new clients as well as retaining the existing ones. Though the investments might result in escalating costs for the industry participants, digital prowess continues to fetch regular revenues and drives their margins in the long term.

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Better Consumer Spending: Substantial personal savings made during the pandemic enable continued consumer spending despite looming fears of inflation and recession. Strong wage gains resulting from a tight labor market have positively influenced the purchasing power of consumers. The affinity of people to spend more implies increased utilization of product and service offerings of financial transaction service players. This, in turn, boosts transaction volumes that contribute significantly to the revenues of industry participants. According to the 2023 Annual U.S. Economic Outlook issued by one of the digital payments leaders, Visa, consumer spending in the first half of 2023 is expected to remain higher than the 2022 figure and gradually pick up in the latter part of the year.

Improved Cross-Border Travel: The receding impact of the pandemic led to the easing of border restrictions and renewed confidence in travel. These factors have led to a recovery in international travel, thus driving cross-border volumes of companies in the financial transaction services space that engage in global money transfers. The industry participants having exposure to the cross-border business leave no stone unturned to devise platforms backed by an interconnected banking network and sound expertise in the seamless processing of digital payments. Amid the ongoing recovery of cross-border travel, these platforms inevitably reap benefits for the players.

An Active M&A Strategy: Participants of the financial transaction services space frequently resort to the M&A strategy to upgrade their capabilities in addition to making uninterrupted technology investments. The strategy reflects industry players’ focus on bolstering their customer base, entering new markets and establishing a significant share across the global market. The primary aim behind these deals is to bring about diversification benefits that differentiate an organization from its industry peers. The current year is expected to be exciting, with respect to M&A deals, according to PwC’s Global M&A Industry Trends: 2023 Outlook.

Zacks Industry Rank Instills Optimism

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all-member stocks, indicates bright near-term prospects. The Zacks Financial Transaction Services industry is housed within the broader Zacks Business Services sector. It currently carries a Zacks Industry Rank #76, which places it in the top 30% of more than 250 Zacks industries.

Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.  The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate.

Before we present a few stocks that you may want to buy or retain in your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Outperforms S&P 500 & Sector

The Zacks Financial Transaction Services industry has outperformed not only the Zacks S&P 500 composite but also its sector as well in the past year.

In the said time frame, the industry has lost 6.8% compared with the S&P 500’s 10.5% decline. The Zacks Business Services sector has slumped 15.7% in the same time frame.

One-Year Price Performance

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Zacks Investment Research


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Industry's Current Valuation

On the basis of the forward 12-month Price/Earnings ratio, commonly used for valuing financial transaction services stocks, the industry is currently trading at 19.00X compared with the S&P 500’s 17.97X and the sector’s 23.57X.

Over the last five years, the industry traded as high as 21.47X, as low as 15.97X and at the median of 19.36X.

Forward 12-Month Price/Earnings (P/E) Ratio

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Zacks Investment Research


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Zacks Investment Research


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5 Stocks to Keep a Close Eye on

We are presenting two stocks from the space currently carrying a Zacks Rank #2 (Buy) and three stocks carrying a Zacks Rank #3 (Hold). Considering the current industry scenario, it might be prudent for investors to buy or retain these stocks in their portfolio as these are well-placed to generate growth in the long haul.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Visa: Based in San Francisco, CA, Visa continues to benefit from growing business volumes, which in turn, are aided by improved payments volume, processed transactions and the ongoing recovery of cross-border travel. Continuous pursuit of acquisitions and significant technology investments equip this Zacks Rank #2 company to sustain its leading position in the rapidly-evolving payments market. Visa Token Service, Tap to Pay, Visa Direct and Click to Pay are some of the digital solutions developed by V in recent years to advance its digital platform.

The Zacks Consensus Estimate for Visa’s fiscal 2023 earnings is pegged at $8.43 per share, indicating a 12.4% rise from the year-ago reported figure. The consensus mark for current-year revenues implies a 10% improvement from the year-ago actual. V’s earnings beat estimates in each of the last four quarters, the average being 8.62%. Shares of Visa have gained 3.5% in the past three months.

Price and Consensus: V

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Fiserv: Headquartered in Brookfield, WI, Fiserv is aided by the sound performances of its segments, namely Merchant Acceptance, Fintech, and Payments and Network. Strength across its Clover and Carat platforms, an advanced suite of ISV Solutions and, growing demand for digital banking and digital solution offerings paves the way for long-term growth of this Zacks Rank #2 payment solutions provider. Acquisitions and a diversified product portfolio continues to bolster the digital capabilities and expand its customer base.

The Zacks Consensus Estimate for Fiserv’s 2023 earnings is pegged at $7.30 per share, indicating a 12.5% rise from the year-ago reported figure. The consensus mark for current-year revenues indicates a 6.3% improvement from the year-ago actual. FISV’s earnings beat estimates in two of the last four quarters, matched the mark once and missed the same on the remaining occasion, the average being 0.22%. Its shares have advanced 13.7% in the past three months.

Price and Consensus: FISV

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Mastercard: Headquartered in Purchase, NY, Mastercard is aided by growing worldwide gross dollar volume (GDV) and switched transactions coupled with rebounding cross-border volumes. Strong consumer spending despite continued inflationary headwinds also benefits MA’s performance. This Zacks Rank #3 tech giant remains quite active in terms of acquisitions and collaborations to expand its addressable markets and drive new revenue streams. It has frequently undertaken significant investments to build a solid digital suite.

The Zacks Consensus Estimate for Mastercard’s 2023 earnings is pegged at $12.13 per share, indicating a 13.9% improvement from the year-ago reported figure. The consensus mark for current-year revenues suggests 12.6% growth from the year-ago actual. MA’s earnings beat estimates in each of the last four quarters, the average being 10.87%. Its shares have inched up 1.7% in the past three months.

Price and Consensus: MA

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Global Payments: Based in Atlanta, GA, Global Payments’ performance receives an impetus from strong performances across its Merchant Solutions, Issuer Solutions and Consumer Solutions units. The growing uptake of digital payment methods is expected to boost GPN’s transaction volumes. This Zacks Rank #3 payments technology company remains quite active in pursuing technology investments that are leading to a shift in its business mix toward technology enablement.

The Zacks Consensus Estimate for Global Payments’ 2023 earnings is pegged at $10.28 per share, indicating a 10.3% rise from the year-ago reported figure. The consensus mark for current-year revenues hints at a 5.7% uptick from the year-ago actual. For 2023 earnings, GPN witnessed five upward estimate revisions compared to three downward revisions over the past 30 days. Its shares have rallied 11.9% in the past three months.

Price and Consensus: GPN

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Equifax: Based in Atlanta, GA, Equifax’s top line continues to be driven by benefits arising from buyouts and continued general consumer credit activity. The Zacks Rank #3 global data, analytics and technology company resorts to cloud data and technology transformation efforts to bring about innovation and product development as well as solidify customer and partner integration. A diversified client base from industries such as financial, mortgage, consumer, employees, telecommunications and many others keeps revenues flowing to EFX, in case of weakness cropping up in any sector that it serves.

The Zacks Consensus Estimate for Equifax’s 2023 earnings is pegged at $7.29 per share. The consensus mark for current-year revenues implies a 4.2% improvement from the year-ago actual. EFX’s earnings beat estimates in each of the last four quarters, the average being 3.60%. Its shares have gained 2% in the past three months.

Price and Consensus: EFX

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Visa Inc. (V) : Free Stock Analysis Report

Mastercard Incorporated (MA) : Free Stock Analysis Report

Fiserv, Inc. (FISV) : Free Stock Analysis Report

Equifax, Inc. (EFX) : Free Stock Analysis Report

Global Payments Inc. (GPN) : Free Stock Analysis Report

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